If you earn interest from a bank or post office FD, TDS on fixed deposit interest is something you need to understand. Banks deduct tax at source once your interest income crosses a set limit. However, many depositors don’t know how this deduction works or how to avoid it legally. At Nimble Trio, we regularly break down topics like this to help you file smarter — so let’s walk through the rates, limits, and exemptions in simple terms for 2026.

What Is TDS on Fixed Deposit Interest?

TDS, or Tax Deducted at Source, is a mechanism where the bank deducts tax before crediting your interest income. Instead of paying tax on your FD interest at the end of the year, the bank collects a portion upfront and deposits it with the government on your behalf. This amount later reflects in your Form 26AS and can be adjusted against your total tax liability while filing your ITR.

Under the older Income Tax Act, 1961, this rule was covered under Section 194A. From April 1, 2026, under the new Income Tax Act, 2025, the same provision has been renumbered as Section 393. The rules themselves remain largely the same, but it’s worth knowing the new reference if you’re reading official notices.

TDS Rate on Fixed Deposit Interest in 2026

Banks currently deduct TDS on fixed deposit interest at 10%, provided your PAN card is linked to your bank account. If your PAN is not updated, the rate doubles to 20%. Therefore, keeping your PAN details current with your bank is essential to avoid a higher deduction.

TDS Limit on Fixed Deposit Interest (Threshold)

Effective FY 2025-26, banks deduct TDS only once your total FD interest crosses:

• ₹50,000 for individuals below 60 years
• ₹1,00,000 for senior citizens (60 years and above)

This limit was raised from the earlier ₹40,000/₹50,000 threshold, giving depositors more headroom before TDS kicks in. Additionally, this limit applies across all FDs held with a single bank, not per branch. As a result, if you have multiple FDs at the same bank, the interest from all of them is added together.

For deposits held with non-bank entities such as NBFCs or corporate FDs, the threshold is lower, at just ₹10,000 per year.

How Core Banking Systems (CBS) Affect Your TDS Limit

Most nationalised and private banks now run on a Core Banking System (CBS), which links all your branches together. This means the bank adds up your interest from every branch before checking whether you’ve crossed the threshold. For example, suppose you hold FDs across three branches of the same bank, earning ₹31,000, ₹18,000, and ₹33,000 in interest respectively. Individually, none of these crosses ₹50,000. However, since the bank has CBS, it adds them together — ₹82,000 in total — and deducts TDS on the entire amount.

Smaller cooperative banks that haven’t adopted CBS may still calculate interest branch-wise. In such cases, if each branch’s interest stays under the threshold, no TDS gets deducted, even if your combined interest across branches is higher. This is a loophole that’s gradually closing as more banks move to CBS, so it’s not something to rely on for tax planning.

How TDS on FD Interest Is Calculated

The bank calculates interest on an accrual basis, meaning it adds up the interest earned every quarter, even if you haven’t withdrawn it. Once the cumulative interest crosses the threshold, TDS applies on the entire amount, not just the excess. For instance, if your total FD interest for the year is ₹55,000, TDS is deducted on the full ₹55,000, not just the ₹5,000 above the limit. With a 10% rate, that works out to ₹5,500 deducted, leaving you with ₹49,500 credited to your account.

TDS Exemption on Fixed Deposit Interest

Certain depositors can avoid TDS deduction entirely by submitting the right forms.

Form 15G and Form 15H

Form 15G is meant for individuals below 60 years whose total income is below the taxable limit. Form 15H, on the other hand, is for senior citizens in the same situation. Submitting these forms at the start of the financial year tells the bank not to deduct TDS, since your income doesn’t attract tax in the first place. It’s important to submit these forms every year, as they don’t carry forward automatically. Under the Income Tax Act, 2025, both forms may be consolidated into a new form going forward — check the latest CBDT notification before relying on this for filing.

TDS on FD Interest for Senior Citizens

Senior citizens enjoy a higher exemption limit under Section 80TTB, which allows a deduction of up to ₹50,000 on interest income from deposits. Consequently, many senior citizens end up paying little to no tax on their FD interest, provided they file Form 15H correctly and stay within the ₹1,00,000 TDS threshold.

TDS on FD Interest for NRIs

For Non-Resident Indians, TDS on FD interest doesn’t fall under Section 194A at all — it’s governed by Section 195, and the rate is considerably higher, generally around 30%. NRIs also can’t use Form 15G or 15H to avoid this deduction, since those forms are meant for residents only.

How to Avoid or Reduce TDS on FD Interest

Here are a few practical ways to reduce or avoid TDS legally:

• Submit Form 15G or 15H if your income is below the taxable slab.
• Split your FDs across different banks, since the threshold applies bank-wise, not overall.
• Choose a non-cumulative FD if you want to track interest payouts more closely.
• Keep your PAN updated to avoid the higher 20% deduction rate.

How to Claim TDS Refund on FD Interest

If TDS has already been deducted but your total income is below the taxable limit, don’t worry. You can claim a full TDS refund while filing your Income Tax Return. Simply report the TDS amount shown in Form 26AS, calculate your actual tax liability, and the excess amount gets refunded directly to your bank account after processing.

If you haven’t filed your return yet, our step-by-step ITR filing guide walks you through the entire process from start to finish.

Final Thoughts

Understanding TDS on fixed deposit interest helps you plan your investments more efficiently and avoid unnecessary deductions. Whether you’re a salaried individual or a senior citizen, submitting the right forms and tracking your interest income across banks can save you both time and money during tax season. If you’re unsure about your specific situation, consulting a tax professional is always a good idea.

FAQs 

Is FD interest taxable in India? Yes, FD interest is fully taxable under “Income from Other Sources,” regardless of whether TDS is deducted or not.

What happens if my PAN is not linked to my FD account? The bank deducts TDS at 20% instead of the standard 10% rate.

Can NRIs avoid TDS on FD interest? No, TDS rules for NRIs fall under Section 195 and are generally higher; Form 15G/15H doesn’t apply to NRI accounts.

What is the TDS limit for senior citizens on FD interest? ₹1,00,000 per year, effective FY 2025-26, up from the earlier ₹50,000 limit.

Can splitting FDs across branches help avoid TDS? Not anymore in most banks. Once a bank adopts Core Banking System (CBS), interest across all your branches is added together before the threshold is checked.